CAD Traders Eye BoC Decision Amid Rate Gap Constraints
According to Scotiabank strategists Shaun Osborne and Eric Theoret, the Canadian Dollar (CAD) is trading near its fair value against the US Dollar. Despite volatile Federal Reserve expectations and trade uncertainty, the CAD has shown resilience, outperforming its benchmark by a modest margin. The fundamental equilibrium estimate for USD/CAD has nudged higher to 1.3920, reflecting wider front-end US/Canada swap spreads.
The wide rate gap is seen as a limiting factor for potential gains in the CAD. This week's Bank of Canada policy decision on Wednesday and Friday's jobs report are expected to reflect no significant changes in policy or outlook. The technical analysis suggests room for the USD to correct further, but not too much, given still USD-bearish trend oscillators.
The strategists expect firm resistance at 1.3980/00 and support at 1.3845 and 1.3820/25. They note that corrective USD gains may stretch to the mid/upper 1.39s.